Apr 15, 2013, 04.21 PM | Source: CNBC-TV18
US indices which have continued to gain since the beginning of the year are likely to see some profit booking by investors.
Nick Parsons (more)
Head of Markets Strategy, National Australia Bank | Capital Expertise: Equity - Fundamental
“If we look at America specifically the Dow Jones is up 13 percent YTD, S&P 500 is up 11 percent and Nasdaq gained 9 percent…I think it is going to be difficult to extend the gains currently from here,” Parsons said.
He suggested investors to keep an eye on European Central Bank (ECB) president Mario Draghi’s speech to the European Parliament tomorrow. He hopes that Draghi would mandate politicians to tack action on European rescue packages.
He believes that Indian currency has shown a good resilience since January against dollar and hopes that this resilience would turn in to more positive and supportive for rupee going forward.
Below is the verbatim transcript of the interview
Q: What would you watch out for in Europe itself? There are whole host of things to be settled - Cyprus selling gold as well as other nations not really in the best of health. What are the events you would watch out for in Europe?
A: The standout event on the European calendar is going to be European Central Bank (ECB) president Draghi’s speech to the European Parliament tomorrow. He said that the ECB is prepared to do whatever it takes. He has got his plan in position should anyone request it but I think really he is going to have to turn his firepower back on to the politicians. Really, it is up to the politicians to decide what they are going to do, how they are going to execute the rescue packages and ultimately what type of Europe they want. Frankly, if you look at the mess over Cyprus bailout - that doesn’t really inspire investors with confidence. After all this is a fairly simple thing to say. If Cyprus could afford its own bailout, it wouldn’t need one.
Q: How do you see things panning out from hereon for developed market equities itself? We have seen US stocks continue to hold their own even as other emerging market equities and other asset classes like commodities seriously breakdown. Is this going to continue you think, money getting pulled out of commodity funds, maybe even emerging market funds and get planted into the US?
A: When we last spoke when we talked about the developed markets, which are in general continuing to outperform EM and that theme is still baked on for a little while still to come. If we look at America specifically the Dow Jones is up 13 percent YTD, S&P 500 is up 11 percent and Nasdaq gained 9 percent. So double digit gains mostly for those equities. They would do well to hold onto that. Thus far we have only had a handful of companies in the S&P actually reporting quarterly earnings and it is not going to take much in the way of disappointment for people to begin to question the momentum of that rally. Let us recall we are only in 16th week of the year and when a market is already up 13 percent in 16 weeks then you could understand investors perhaps wishing to lock-in some profits, the one thing that we can most certainly say is at least they have got profits in those markets. I think it is going to be difficult to extend the gains currently from here.
Q: What’s the call on a market like India because we have seen a bit of a collapse in commodity prices? The currency has so far been stable; it has not really fallen off. Would you say going forward, the macro of India takes care of itself and as such, maybe the kind of correction we have seen, it’s a buy or would you stay away from market like India?
A: Looking at the rupee specifically, here we are at 54.64 against the US dollar. On the January 1, we were 54.64. We have gone absolutely nowhere. I take that as a reassuring sign because the US dollar has done tremendously well over the course of this year. Indian currency has managed to keep pace with it and investors in the mean time have been paid quite a decent yield in order to participate in that market. So I would say that I am reassured by the currency performance. I wouldn’t be too concerned by that move from high 52 up to 54 because rightly where we were at the beginning of the year and that shows certain resilience. That resilience is welcome but it is not really until the tide turns more broadly from emerging market (EM) assets that we are going to see that resilience beginning to turn into a more positive and supportive factor. But overall, if you were told at the start of the year that the Indian rupee would keep pace with the dollar and said, would you as an investor accept that, then I think people would have loved it. I think it has been a pretty resilient performance.